Investors Shocked by BOJ’s Decision Not to Ease Policy Further

The yen climbed 2.6% against both the dollar and euro, the Japanese Nikkei plunged 3.6%, and the 10-year JGB yield fell 3 basis points to -0.09%.

The dollar otherwise fell 1.2% against the kiwi and is down 0.3% relative to the loonie, Swissie, yuan, Aussie dollar and sterling. EUR/USD is flat.

In other equity news, share prices fell 1.8% in India, 1.0% in Taiwan, 0.7% in South Korea, 0.4% in Singapore, and 0.3% in China, but the Aussie and New Zealand markets rose 0.7% and 0.8%. In Europe, stocks have slipped 0.5% in France, 0.4% in Greece 0.3% in Great Britain and Germany, and 0.2% in Switzerland. The DOW opened lower.

Ten-year German bunds and British gilt yields are down four and two basis points, while the 10-year Treasury yield edged a basis point higher.

WTI oil is unchanged at $45.34 per barrel. Comex gold climbed 0.8% to $1,255.92 per ounce.

The Bank of Japan left policy settings unchanged, faking out investors all the more so because of soft Japanese CPI data reported and because the central bank did lower its growth and inflation forecasts. GDP is projected to rise 1.2% this fiscal year, 0.1% in FY17 and 1.0% in FY18. Core CPI is seen rising 0.5% this year, 1.7% in FY17 and 1.9% in FY18.

The Reserve Bank of New Zealand left its Official Cash Rate at 2.25% at this year’s second policy meeting. The key rate was sliced 25 basis points at the first meeting in early March and by a similar amount four times during 2015.

Japanese core CPI inflation swung from zero in February to -0.3% in March, lowest since April 2013. Tokyo core CPI inflation was at 0.3% in April, same as in March.

Japanese industrial production rose 3.6% in March but failed to reverse fully a 5.2% drop in February and thus causing output in the first quarter to drop 1.1% compared to the 4Q15 level. March output was just 0.1% higher than a year earlier.

Real Japanese household spending rose 0.5% on month in March but posted a steep 5.3% on-year tumble. Total retail sales increased 1.4% on month in March but fell 1.1% on year.

Japanese unemployment returned to January’s 3.2% level from 3.3% in February. But employment was just 0.3% higher than a year earlier.

On-year growth in Japanese construction orders of 19.8%, housing starts of 8.4%, and motor vehicle production of 1.2% were each greater than February results.

Euroland’s economic sentiment index printed at 103.9 in April, same as in February but 0.9 points better than the March reading. Sentiment indices improved 0.4 points for consumers, 0.9 points for construction, 0.5 points for industry, and 1.9 points for services but deteriorated 0.6 points for retail. The business climate index of 0.13 was little changed.

German CPI inflation slowed to 0.1% in April according to preliminary figures from 0.3% in March. German labor statistics were better than expected, with a 16K decline in unemployed workers in April and an unchanged 6.2% jobless rate (lowest since reunification in 1990).

According to the Nationwide index of British house prices, the 12-month rate of increase slowed to 4.9% in April from 5.7% in March.

Spanish unemployment edged up 0.1 percentage point to 21.0% last quarter, and Spanish consumer prices fell 1.1% in the year to April. Belgian and Icelandic consumer prices rose 2.0% and 1.6% in the same 12 months to April. Italian wage inflation stayed at 0.8% last month.

Greek producer prices posted a 12-month declines of 10.2% in March, whereas South Africa’s PPI rose 7.1% in that span due to rand depreciation.

On-year growth in Swedish retail sales was more than halved to 1.9% last month. Likewise for Irish retail sales whose 12-month increase dropped to 5.2% from 11.0%.

U.S. real GDP expanded only 0.5% last quarter. Along with growth of 1.4% in 4Q15, 2.0% in 3Q15 and 0.6% in 1Q15, this was the fourth quarter in the past five to see growth of 2% or less. GDP also grew 2.0% in the year to 1Q16, down from on-year growth of 2.9% in 1Q15 but a bit above 1.7% in the four quarters through 1Q14. Net exports and inventories each exerted a drag on GDP growth for the third quarter in a row. The total personal spending price deflator rose 1.0% on year, up from 0.5% in the year to 4Q15, while the core PCE deflator was 1.7% higher than a year earlier.

New U.S. jobless insurance claims averaged 256K per week during the past four weeks, down from 263-1/4K in the prior 4 weeks to March 26, 270-1/4 in the four weeks to February 27 and 284-3/4K in the four weeks to January 30. Yesterday’s FOMC statement comment upon the divergence between slower GDP growth and improving labor markets.

The Kansas City Fed manufacturing index fell two points to a 2-month low of -8. Such had been weaker than this level in December-February but above such in October-November 2015.

Currency Thoughts has evolved from a blog to a full-functioning website. This new design provides easier access to your favorite features and new capabilities to accept ads. In the future, it will be possible to register to accept emailed updates.